British economic growth slowed sharply in the third quarter of 2004 to its weakest since the run-up to the Iraq war early last year.
The British Office for National Statistics said today that gross domestic product rose by just 0.4 per cent in the three months to September, lower than the 0.5 per cent gain predicted by analysts and well below the 0.9 per cent rise in the second quarter.
It was the weakest quarterly growth rate since the first quarter of last year when the threat of war in Iraq seriously hurt consumer and business confidence. The figure also means the economy was running well below its long-term trend growth rate in the third quarter.
Interest rate futures and government bonds immediately rose while the pound fell a quarter of a US cent as the figures reinforced expectations that interest rates will remain on hold at 4.75 per cent for the rest of the year and may even have peaked for this cycle.
At 0.4 per cent, third-quarter growth was roughly half what the BoE had predicted in August but policymakers had already noted early this month that the economy had probably been weaker. On the year, GDP rose 3 per cent, down from a 3.6 per cent annual rate in the second quarter.
"The economy is still set to expand by 3 per cent-plus this year but the Monetary Policy Committee and Chancellor of the Exchequer's forecasts of a similar increase next year are looking increasingly too optimistic," said Mr Jonathan Loynes, chief UK economist at Capital Economics.